There’s been something of a pullback for shares across Europe this morning after they ended last week with a flourish. An apparent dovish shift from Jerome Powell sparked a flurry of buying, not just on Wall Street but also across European benchmarks, after the Fed chair delivered his first real soothing remarks to the markets in what some have been calling the birth of the “Powell put”. This moniker is likely a bit of a stretch and while his reassuring words have no doubt contributed to a boost in sentiment for now, it still remains unlikely that the stock market will receive the same level of support from Powell as it did from his predecessors. The FTSE has dipped back towards the 6800 handle in early trade, falling by 30 points from Friday’s closing level.
Calm before the storm
It’s been a relatively subdued start to the week for the pound, with sterling making small gains against the US dollar and Japanese Yen, but falling back against the Euro. The US dollar itself may be vulnerable going forward, especially if the Fed adopt a slower pace of tightening - or even pause their current hiking cycle - and this would provide a boost to the GBP/USD rate. However, the biggest driver in this market will likely remain the pound and while the rate has moved back above the $1.27 handle, it wouldn’t be too surprising if we experience fairly quiet trade in the coming days in a kind of calm before the storm as traders await next week’s key Brexit vote on PM May’s deal. As far as the Euro is concerned, the single currency is making a bright start to the new week and rising against all its major peers after mixed data from Germany showed a better than expected level of consumer spending, although this was tempered somewhat by a surprisingly weak data point on factory orders.
Pound little changed as Brexit worries mount
It appears that traders are likely biding their time for now, as the potential for Brexit-related shocks begins to rise once more. On this front, a recent survey has shown that 72% of UK manufacturers believe Brexit is their biggest source of uncertainty going forward with more than four-fifths of companies asked, saying they are concerned with the possible impact that it could have on the exchange rate, as weaker sterling puts upwards pressure on input costs. The threat of a no-deal is now clearly beginning to have a tangible impact on businesses with more than 6 in 10 of the companies surveyed having already taken steps to stockpile raw materials and key components in a bid to mitigate the risk of future disruptions should this occur. What business leaders crave here is some kind of clarity, and unfortunately for them it appears unlikely that the current levels of uncertainty will drop anytime soon.